According to Wikipedia, Manila is the most densely populated city in the world–and according to Ryan Avent’s Kindle Single The Gated City, density is the name of the game.

Adam Smith famously wrote that the division of labor was the source of the wealth of a nation, and “the division of labor is limited by the extent of the market.” Avent repeats the observation that very densely populated cities make possible a level of specialization that could not exist otherwise. In the restaurant industry alone, Avent observes:

Suppose that 1 person in 100 has developed a taste for Vietnamese cuisine, and suppose that a Vietnamese restaurant needs a customer base of 1,000 people to operate profitably. In a city of 10,000 people, there wouldn’t be enough people to support a Vietnamese restaurant. The only restaurants that could operate profitably would be those appealing to considerably more than 1 in 100 people — those offering less daring culinary fare. In a city of 10,000 people, there is little room for specialization, and less for experimentation.

A city of 1,000,000 people, by contrast, can support multiple Vietnamese restaurants. Not only will this larger city enjoy a cuisine that might not be available in less populous places, but its ability to support multiple producers of this specialty cuisine improves the price and quality of the Vietnamese food that’s served in them. The presence of multiple Vietnamese restaurants arouses the interest of sellers of the fresh ingredients used in Vietnamese cooking, who then invest in distribution of those products in the larger city. This, in turn, attracts the sort of discerning eaters who favor authentic, high quality Vietnamese food, reinforcing the concentration of Vietnamese eateries. The larger market facilitates competition, which boosts quality and reduces prices. This is good for consumers. But competition also means better service from suppliers and growth in the consumer market, which is good for the restaurants. This is a stronger, more productive, and higher quality microeconomy than one might find in the city of 100,000, where only one Vietnamese restaurant stays open, or the city of 10,000, where there is none at all.

Avent argues that the denser the population, the lower the cost of the process of trial and error which a dynamic economy and material progress in general depend upon. The risk of taking a job in software engineering in San Francisco is much less than most places, because there are a lot of other firms that could use your skills if the job doesn’t pan out. This encourages investment in those skills. The risk to a software engineer who tries to become an entrepreneur is likewise reduced because if the startup fails there’s a robust job market for their skills to fall back on. This encourages entrepreneurship, with all the benefits that come with it.

The purpose of The Gated City is to convince you that density is good and that people have created artificial barriers for increasing it in this country.

There are all kinds of zoning and permit regulations of course, but in Avent’s opinion the primary culprit is the NIMBY.

The short version: people already living in a neighborhood will always oppose measures to create the infrastructure for more population density–meaning, for the most part, knocking down old buildings and building new high rises. Local governments nearly always side with the locals and restrict the amount of development that can be done.

This is classic rent-seeking. Current residents are extracting value from property they do not own by keeping it at a certain capacity (and blocking noisy construction), while the people who would have moved there pay the price. And as the barriers put up by NIMBYs in every neighborhood add up, we all end up paying the price as the larger social benefits of density are lost.

Avent’s proposed solutions are very libertarian–basically, strengthen property rights. It’s a little more nuanced than that but that’s what it boils down to.

For its excellent survey of the benefits of population density and its clear framing of the problem, The Gated City is an excellent read and I highly recommend it.

The budget negotations in DC have basically come to an end, and one of the things that got nixed was a tax increase on those earning more than $200,000 a year. Many are upset by this; making the usual cries for fairness that go with arguments in favor of progressive taxation. I can’t speak to that, but I can respond to claims that higher taxes on upper income brackets are a practical necessity for addressing the District’s projected budget gap.

My argument is not a new one: lowering tax rates can, and in the District’s case, almost certainly will increase tax revenue.

The most famous case where this occurred is of the course the Reagan tax cuts, where the top marginal rate decreased but tax revenue increased. This could be attributed to a recovering economy, of course, but the distributional changes were interesting:

The share of the income tax burden borne by the top 10 percent of taxpayers increased from 48.0 percent in 1981 to 57.2 percent in 1988. Meanwhile, the share of income taxes paid by the bottom 50 percent of taxpayers dropped from 7.5 percent in 1981 to 5.7 percent in 1988.

In other words, while the marginal rate decreased on top income earners, the percentage of tax revenue that came from those income earners actually increased–and this during a time when the overall amount of tax revenue had also increased.

I’m not going to pretend one example proves anything; I offer it up merely as evidence that the idea of lower tax rates yielding higher tax revenue is not at odds with reality.

It seems to me that the case for this in the District is particularly strong. DC’s political boundaries only account for one small part of the DC metropolitan region as a whole. As such, area residents are in a better position than most to “shop” for the most personally beneficial policy situation. Moreover, it should be obvious that the wealthier you are, the more options you have available to you. The “voting with your feet” option is more affordable to someone making more than $200K a year than to someone making $30K or $40K a year.

In short, raising the tax rate on people making more than $200K a year wouldn’t necessarily result in an increase tax revenue by a single dollar; it may just result in fewer people in that group filing their taxes in DC.

Moreover, I think a sufficient number of people who live in DC have relatives in Virginia or Maryland whose whom they could claim as their primary residence to make the tax base of the District more flexible than is typical.

The bottom line: I think that the most practical way for the DC government to increase its budget gap would not be to increase taxes on higher income earners, but to lower taxes across the board so that they are on par or slightly lower than the District’s neighbors. This would encourage many more people to file their taxes in DC.

Credible commitment is the problem faced by anyone seeking to get something later from someone in exchange for giving up something now. Can the other party credibly commit, before the fact, to still go through with their end of the bargain when they already have what they want?

Now, it is in the interest of both parties for them to be able to credibly commit, because the first party is not going to do their part if they can’t reasonably expect the second party to go through with theirs. I’m not going to pay the car salesman if there’s no reason for me to believe that I’m going to get a car out of it. I’ll pay him because I expect that if he reneges, he will be punished for it. Maybe he will be fined in court, or have to serve jail time. Or maybe it’s just obvious that if he didn’t give people cars for their money, he wouldn’t have been in business for so long because he would have had a deservedly horrible reputation.

In any case, people are clever, and they’ve developed mechanisms to credibly commit in advance. Whether it’s through legal recourse, collateral, or any number of other means.

The problem is that government can always break its commitments.

When the government is the car salesman, it won’t be punished by the law–for the government is what enforces the law. It is much much harder for government actors to credibly commit than it is for private actors.

The best thing a government can do for its ability to encourage people to do business with it is to establish a very long track record of keeping its promises. The fact that the US federal government has never outright defaulted since Alexander Hamilton took on the debts incurred during the Revolutionary War has greatly augmented its ability to secure loans today.

So where do we stand in the District?

I saw this story today, which did bring up a credible commitment problem within the Council. But mostly it reminded me of an earlier story I’d seen:

Dozens of District residents who installed solar panels on their homes under a government grant program promoting renewable energy have been told they will not be reimbursed thousands of dollars as promised because the funds were diverted to help close a citywide budget gap.

When you are living beyond your means, it is no longer within your means to keep your promises. Does anyone think the Council’s promises will be worth much of anything in the future?

Times are tough, and transportation programs help all residents, rich and poor, which is why it’s good for DC to be making the investment. Education, public safety, and much more are also critical. But it’s also unfair and unreasonable to make budget cuts disproportionately hurt the neediest residents.

It’s always interesting how specific spending cuts are picked on as “unfair” or cruel or immoral, but rarely do the critics go on to point out areas where spending could be cut that would be fair, humane, and moral. Take the Greater Greater Washington quote above–it applauds Mayor Gray for not cutting in some areas, then criticizes the one area under discussion where he does cut. Meanwhile, there is an expected budget gap of over $300 million–something is going to have to be cut.

Nevertheless, what should be cut is a legitimate discussion, so I will briefly state the case for putting this particular item on the chopping block.

At stake is a cool $18 million siphoned from the Housing Production Trust Fund (HPTF). According to the Washington Post;

The trust fund provides direct subsidies to developers to set aside units or, in some cases, entire buildings that they rent or sell for less than market rates. The developers must agree that rental units will remain affordable for 40 years and ownership units for 15 years.

In short, with HPTF the DC government offers developers a bargain–we will give you extra money if you use at least some of it to build apartments that you cannot charge a profitable rate for.

This bundles a housing subsidy with a very specific kind of rent-control. I think all all forms of both are counterproductive, but this one is stranger than most.

Granted this is way, way preferable to old-school rent-controls of the sort enforced in places like New York, where people were just categorically told they couldn’t charge more than a certain price to their tenants. This at least is as voluntary for the parties involved as anything funded with tax money can be.

Nevertheless, subsidies don’t make sense in a city where the supply of housing is increasing like gangbusters (if subsidies in the housing market ever make sense to begin with!). And rent-controls of any kind always suffer from the same problems.

The problem stems from lack of real ownership. Oh sure, some of these HPTF funded rental buildings may be owned by someone. But not in the important economic sense of being a residual claimant.

Econ 101–people have an incentive to invest in their property because they can personally benefit from any increases in its value. When I say “invest”, spending money can be involved, but also things like time and attention.

The pathologies associated with rent control and housing projects are well documented–landlords underinvest in the maintenance of rent-controlled flats, housing projects become dens for crime and violence. When no one owns something, no one has any incentive to see that it is properly maintained, or protected.

When the price system is allowed to work, any increase in the value of a property is reflected in the price. If the price can’t rise, then a big incentive to increase or maintain the value of that property has been erased.

Building entire rent-controlled buildings, or even just rent-controlled units within otherwise free buildings, is to sink resources into something that will inevitably fall into disrepair and display other, worse symptoms of negligence.

So I don’t think cutting HPTF is a bad thing, especially when the District government is already spending above its means.

As Martin Austermuhle wrote this morning, there are many narratives floating around to explain Vince Orange’s victory in the special election for the open at-large council seat. Nearly all of the ones that I have seen have, unsurprisingly, focused on race.

There is little doubt that these elections highlight the changes that DC is currently undergoing. As the Post put it:

Orange struggled to win over voters in neighborhoods in the western part of the city, resulting in an electoral split similar to last year’s mayoral race, in which Gray unseated Adrian M. Fenty (D).

Again this is billed as white DC vs. black DC, but I prefer to think about it in terms of old DC politics vs. new DC politics. What these two elections have shown is that the newcomers are becoming increasingly politically aware and active, if not as of yet effective.

The narrative of old DC vs. new DC is not something that just cropped up to explain the election results after the fact, but played an enormous role throughout the campaign. Late in the campaign, Kwame Brown’s father Marshall, who was on Sekou Biddle’s campaign staff at the time, was quoted in a Washington Post article:

Marshall Brown, a longtime D.C. campaign strategist whose son Kwame is the council chairman, worries that the shift in population will result in a racially polarized electorate. “The longtime white population, the people who got involved in statehood, civil rights and environmental causes, thought of this as a black city,” said Brown, who is black. “But the new white voters aren’t involved like that. They want doggie parks and bike lanes. The result is a lot of tension.

“The new people believe more in their dogs than they do in people. They go into their little cafes, go out and throw their snowballs. This is not the District I knew. There’s no relationship with the black community; they don’t connect at church, they don’t go to the same cafes, they don’t volunteer in the neighborhood school, and a lot of longtime black residents feel threatened.”

We will be out of town, however, I know you can help us with the following:

If you can, please vote for Vincent Orange tomorrow and “please call your
DC folks to also to vote for him.” This election, to me and others believe
that this will be the last time that folks of color will be able to
determine our own “DC” destiny, openly, I think, personally.

All this talk is very strange to me.

Don’t get me wrong, I’m not naive–I am aware of the dramatic demographic shift that has occurred and is occurring in the District. But race, while the most visible element of this change, hardly tells all or even most of the story.

For one thing, I don’t think you can explain everything that has gone on in DC in the period from the riots to the end of the crack outbreak in terms of race. The implication of the listserv post quoted above is that during this period, District blacks were able to determine their own destiny. But what does that even mean?

The District gets a lot of flack because of its political troubles in general, and Marion Barry in particular. But just because Barry managed to get himself elected, and is still in office, doesn’t mean that everyone in his constituency wanted him to be there. For most of my life as a registered voter, I lived in Jim Moran‘s district in Virginia. I voted against him every chance I got, and yet he remained. I did not feel like I was determining my own destiny, with regard to Jim Moran.

This is absurd. Mara has clearly assumed that anyone who was white would have voted for him, if they hadn’t gone and voted for that other white candidate. (EDIT: a commenter argued that I was reading too much into Mara’s statement, especially given that he mentions Biddle, who is not white. Reconsidering the matter, I think he’s right; it’s unfair to characterize Mara’s statement this way)

The fact of the matter is that many of the people who voted for Weaver would never have voted for a Republican candidate, however watered down he was for his DC audience. And there are many people who may simply not have voted at all if the candidate that they did vote for hadn’t been running.

Mara’s frustration is understandable–he was just over a thousand votes shy of pulling off the impossible and becoming a Republican on the city council. But the Mike Debonis tweet quoted above is part of a frustrating trend of people who, unlike Mara, don’t have a dog in the fight and yet still boil it down to a “split white vote”.

Why would we ever expect “the white vote” to be anything other than split? As a libertarian, when it comes to policy matters I disagree with more people than I agree with–regardless of whether they are black, white, asian, or moon-beast.

DC is in the midst of a change in the perspectives being brought to the ballot boxes, and this will result in a shakeup of the political landscape sooner or later. But the end result will not be that white people in DC will be controlling their destiny at the expense of black people, who no longer can. Governance just does not work that way, in a democracy or in any system.

The article quoted above is written in a traditional new story format, meaning it advances no argument explicitly. As with all stories in this format, an argument is nevertheless quite easy to spot.

First, the spending cuts are causing suffering among the little guys in DC’s arts community.

The Kennedy Center received an NCACA grant last year of $650,000—the largest in raw dollar terms, but barely a sliver of its operating income of $94 million.

Then there are groups like Dance Place, which took in just a hair over $1.1 million last year. The Brookland studio is the smallest and newest NCACA beneficiary. The $290,779 it received was the least doled out by the federal program but accounted for a full quarter of its budget. For a group like Dance Place, the federal grant quite literally keeps the lights on, pays the rent, and hires performers and instructors to fill the calendar.

Even a cold-blooded, heartless libertarian such as myself doesn’t enjoy it when people are put out of business because their government funding is yanked. Still, the same can be said for many other situations where the transition is unpleasant but necessary or legitimate. For instance, the fact that word processors and printers have dramatically reduced the employment in typewriter production does not make me dislike word processors or printers.

Now writer Benjamin Freed could just be telling a straightforward empathy piece for the plight of these small arts groups, but I don’t think so. Through the quotes from people at these groups, an argument is brought forward.

“I think the thinking is, ‘That’s OK, no free art’,” she says. “It’s not just about art. It’s about jobs and cultural programs and keeping teenagers off the street and keeping them employed.”

Further down:

“This is just a terrible time for the city to be losing $7 million that goes to arts organizations and from there into the city’s economy,” Epstein says. “They’re the economic engines that revitalize neighborhoods. They pay vendors and salaries. The nation’s capital should be a shining light where the country showcases its arts and cultural life. This cut is going to diminish that.”

Here we are presented with a defense of spending on the arts–it is good for the economy.

This is disingenuous–you don’t have to spend on the arts to spend on DC. This is an argument against spending cuts overall, not spending cuts in the arts. I don’t want to tackle the question of federal spending on DC in general–that’s an entirely separate question. The question is why tax money should be spent on the arts specifically.

As you will no doubt be shocked to learn, I am against it. I don’t see why any particular arts program deserves to get any more money than what people are willing to give them voluntarily.

Moreover, comments like this get my blood boiling:

Studio Theatre’s retired founder, Joy Zinoman, was more blunt in her criticism of the federal budget process and angry the slashing of NCACA grants wasn’t noticed sooner. “What [this] will do to the cultural life in Washington is a criminal act,” she said.

Two things bother me about this.

First, the sense of entitlement that people like Zinoman have is unbecoming. Why should citizens in California, New York, Texas, and the rest of the country have to pay for arts programs that nearly all of them will probably never see? Why does Zinoman think that Studio is owed their fellow citizens’ money?

Second, the implication that DC’s “cultural life” needs these subsidies. There are plenty of artists, writers, performers, and creative individuals of every stripe living in the District. Most of them can’t make a living doing what they love but they are still doing it; they are still participating in and contributing to the District’s cultural life. This is how it is in every city, how it would be with or without subsidies.

Moreover, these subsidies always go to a certain category of “cultural life”. I submit that you are unlikely to hear Zinoman calling for subsidizing romance novel writing, or producing soap operas, in the District. That is because there are already big, healthy markets for genre fiction and television dramas of many stripes. The natural market position for the kind of art that the Studio Theatre or Dance Place produces is much smaller than some people are happy with, and so they demand that taxpayers augment them.

When funding for the arts cannot be obtained in the market, they ought to be obtained in civil society or not at all.

Civil society is composed of the totality of voluntary social relationships, civic and social organizations, and institutions that form the basis of a functioning society, as distinct from the force-backed structures of a state (regardless of that state’s political system) and the commercial institutions of the market.

I did not come to the District in search of civil society. In point of fact, I came here for love. Even before I moved into DC proper, though, I was aware of the vibrant blogosphere. I didn’t read too much myself; mostly I was interested as an observer of a new phenomenon. I’ve written about online communities of interest for years, and the additional element of location made it all the more fascinating to me.

DC’s blogs exist in a conversation with the readers, with each other, with more traditional publications, and with the community at large. In the cracks between these high level, high attention conversations are enormous expanses filled with energetic social media activity. Twitter, in particular, plays an enormously central role in this community–so much so that one of the community’s critics famously referred to its members as “myopic little twits.”

This isn’t just a bunch of people chattering over the internet, either. The internet is a means to an end–sure, that end does involve a lot of conversation, as well as sharing links, pictures, videos, and so forth. But just as often the end involves gathering groups of people in person.

There are the friendly get-togethers and there are artistic and cultural events. There are happy hours and there are political debates.

I am young, and inexperienced with this sort of thing. But it seems to me that the community I stumbled into by accident is the very definition of civil society. It is people voluntarily spending their time trying to shape the cultural–and increasingly, the political–scene in the District. It is something much larger than any of the individuals participating in it.

I’m sick of hearing that government is the “problem.” Government should be where we all come together to do the things none of us could do on our own. It’s where we come together to make the impossible possible.

To me, the only thing special about government is that it relies primarily on nonvoluntary means of organization. The fact that we live in a democracy often masks that fact, but other than the mechanism of voting itself, most of the things that make a healthy democracy great do not fall under the umbrella of government. Instead, they involve people working within civil society, attempting to influence not just politicians, but fellow citizens. “The argument for democracy presupposes that any minority opinion may become a majority one”* and every day various opinions that are a minority within this community or in DC at large outside of it are advanced and discussed.

Civil Society, in short, is really “where we all come together to do the things none of us could do on our own” in the sense that Dave was talking about. And civil society in the District is changing very rapidly along with many other changes it is in the midst of.

The District Libertarian was created for the precise purpose of increasing my participation in that civil society, and to encourage other libertarians in the community to participate as well.